Horse racing data permit interesting tests of attitudes toward risk. The present paper studies a new sample of racetrack results from Atlantic City, New Jersey. The questions examined are: (1) Are the market odds the best data for predicting the order of finish? (2) Do horses go off at odds that reflect their true probability of winning? (3) Is there any evidence that late bettors have better information than early bettors? It is found that market odds predict the order of finish well, but that ‘favorites’ are good bets and ‘long shots’ are poor ones. The data suggest that there does exist an ‘informed’ class of bettors and that bettors are on the whole neither risk neutral nor risk averse.

This paper investigates whether predictable patterns that previous empirical work in finance have isolated appear to be persistent and exploitable by portfolio managers. On a sample that is free from survivorship bias we construct a test wherein we simulate the purchases and sales an investor would undertake to exploit the predictable patterns, charging the appropriate transaction costs for buying and selling and using only publicly available information at the time of decision making. We restrict investment to large companies only to assure that the full cost of transactions is properly accounted for. We confirmed on our sample that contrarian strategies yield sizable excess returns after adjusting for risk, as measured by beta. Using analysts' estimates of long-term growth we construct a test of the Lakonishok, Shleifer, and Vishny (1994) hypothesis. We cannot reject the hypothesis that neither the low-expected-growth portfolio nor the high-expected-growth portfolio yielded any risk-adjusted excess return over the 1980s. Our finding suggests that the superior performance of contrarian strategies cannot adequately be explained by the superior performance of stocks with low expected growth.

George M. von Furstenberg, Burton G. Malkiel, Financial Analysis in an Inflationary Environment, The Journal of Finance, Vol. 32, No. 2, Papers and Proceedings of the Thirty-Fifth Annual Meeting of the American Finance Association, Atlantic City, New Jersey, September 16-18, 1976 (May, 1977), pp. 575-588

I. Introduction, 48. — II. A preliminary model for the valuation of convertible bonds, 49. — III. Statistical implementation of the model, 51. — IV. Altering the assumptions, 54. — V. Summary comment, 59.

I. Portfolio theory and the availability doctrine, 113. — II. Portfolio optimization under deposit variability, 120. — III. Some extensions of the argument, 125. — IV. Conclusions, 128. — Appendix, 130.